A Brief History of American Paper Money,
with Emphasis on Georgist Perspectives
GroundSwell, September, 2012]
Here in the New York City/Metro chapter of Common Ground, we have
had discussions not only on the Land question, which we all support
in the Georgist reformist sense, but on the relative role of money
in setting things up for a more just and fair society.
Finally, during the Spring of 2011, we took a vote on the
following ballot proposal (submitted by me):
Writing in a 2003 issue of Common Groundâs
newsletterÂ GroundSwell, Stephen Zarlenga quotes Henry
George on his concept of Money:
Writing on money and government, at age 44, in Social
Problems (1884), he had an advanced concept of how a money
system should operate:
"It is not the business of government to to direct the
employment of labor and capital. On the other hand it is the
business of government to issue money. To leave it to everyone who
chooses to do so to issue money would be to entail general
inconvenience and loss, to offer, to offer many temptations to
roguery, and to put the poorer classes of society at a great
disadvantage. These obvious considerations have everywhere led to
the recognition of the coinage of money as an exclusive function
"The evils entailed by wildcat banking in the United States
are too well remembered to need reference. The loss and
inconvenience, the swindling and corruption that flowed from this
ended with the war, and no-one would now go back to them."
"Yet instead of doing what every public consideration
impels us to, and assuming as the exclusive function of the
General Government the power to issue money, the private interests
of bankers have, up to [now], compelled us to the use of a hybrid
currency." (Social Problems, 178-9)
The complete speech can be found here [on the Common Ground U.S.A.
webiste); and the full 80-page research paper, sponsored by the
Robert Schalkenbach Foundation here:
Should Common Ground-NYC officially support Money only produced by
the Federal Government and not by individual banks via the
fractional reserve system?
Yea _____ or Nay ______
The vote came back:
Should Common Ground-NYC officially support Money only produced by
the Federal Government and not by individual banks via the
fractional reserve system?
yea 8 nay 4
The membership has grown and changed since then, but the local
chapter has continued to support its previous vote. We have
undertaken several activities to support our secondary position on
money creation producing and passing out fliers on the money
issuance issue, speaking on Public Access TV (me), writing articles
More recently, I started attending the Money and Credit course now
being given at the New York City Henry George School. I would like
to think that our members were somewhat instrumental in persuading
the school to tackle this aspect of Georgist economic reform and
education, as we argued for it for nearly a year, and one of our
members, former school Director Cay Hehner, and long-time member
Lindy Davies, actually submitted a course curriculum to the school,
though a shorter, less intensive curriculum was ultimately adopted.
The nature of the course inspired me to write the following paper,
also published as an article on Op Ed News:
Government can, does, and has, created money without debt. It does
this currently every time it produces physical coins, and has done
so since 1792, under the original coinage act. The same option
exists for paper money.
Henry George, writing in The Standard, (December 1889),
during the height of the Greenback era, said in
Issue of Bimetalism and Money Creation [emphasis added]:
The constitutional power to issue money comes from the following
clauses of the constitution:
Sec. 8.-The congress shall have power:
To borrow money on the credit of the United States.
To coin money, regulate the value thereof, and of foreign coin,
and fix the standard of weights and measures.
As to the nature of money gold and silver are not of themselves
money, nor yet can money be made by legislative fiat. What makes
anything money is the common consent to receive it. Where this
exists without it, no intrinsic value is needed, Where this does
not exist, governments may stamp and issue and fiat in vain. The
history of our own governments, as the history of all governments,
Gold and silver, and in a less degree, copper, do possess
certain natural qualities of permanence, portability and
divisibility which peculiarly fit them for use as money so long as
intrinsic value is a necessary quality, and which still give to
the first of these metals something of the character of an
international money as a standard of value and in the settlement
of balances. But where there is a credit and confidence behind it
sufficiently stable and wide, paper becomes the most convenient
and least expensive material out of which money can be made.
The general government should be the only issuer of money, both
for the general convenience and the protection (in the true sense
of the term) of those who are most liable to have inferior money
passed upon them, and because the issuing of credit money for
general circulation is a valuable privilege, which ought to be
shared by the whole people and not suffered to enrich a few.
We have at the present time in the United States nine kinds of
money in circulation. Copper coins, nickel coins, silver coins,
gold coins, silver notes, gold notes, national bank notes and
direct treasury notes, or greenbacks. Of these nine kinds of
money, only one kind, the gold coins, have an intrinsic value
equal to their current value. But this one kind of money, which
alone has intrinsic value equal to its current value, is not at
all preferred by the people on that account. On the contrary, over
the far greater part of the United States (I do not know how it is
now in California, as I have not been there for some years),
silver notes, national bank notes, or even greenbacks, are
preferred to gold as having an equal current value and being more
portable; and all these nine kinds of money, differing greatly in
intrinsic value and representative character, circulate
interchangeably at par with one another. The induction is
irresistible that it is not the intrinsic value of the money, or
anything that is pledged for the redemption of the money, or is
held by the United States as its representative, but the credit of
the government itself which secures the common consent by virtue
of which our money circulates. Therefore it is a sheer waste that
we should be buying and hoarding up in treasury vaults immense
quantities of gold and silver that might as well be in the mines
from which they are taken for any useful purpose they are serving.
One uniform currency, consisting of paper and subsidiary coins,
the direct issue of the government, and such gold coin as anybody
wanted the United States to assay and stamp, would save an
enormous sum annually to the people of the United States.
The real thing which gives paper money its validity is not the
government stamp, but the common consent and general credit which
George concluded with a warning:
What the silver men want are two things, or rather there are two
classes of silver men, each wanting a separate thing, who are
uniting their forces:
1. Those who want the government to buy silver for which it has
no need, in the hope that they will get a higher price for their
2. Those who want to depreciate the currency by bringing it to a
I am opposed to both these projects. But if we must depreciate
our currency let us at least do it in the cheapest and most manly
fashion, by issuing directly currency enough to do it, without
buying hundreds of tons of silver for which we have utterly no
George, then, was a fiat, paper money, advocate.
Paper money, like other kinds of currency, has a long and complex
history in the United States. Paper Notes were in use before and
during the Revolution.
There are two distinct epochs of paper money in America. The first
began in 1690 and ended with the adoption of the U.S. Constitution
in 1789. In this first epoch the legislatures of the various
colonies (later states) directly issued their own paper money called
bills of credit to pay for their own governments expenses and as
mortgage loans to their citizens, who pledged their lands as
collateral. This paper money became useful as a circulating medium
of exchange for facilitating private trade within the colony/state
issuing it. By legal statute and precedent, people could always use
their paper money to pay the taxes and mortgage payments owed to the
government that had issued that specific paper money, which, in
turn, gave that money a local currency. There could be as many
different paper monies as there were separate colonies and states.
Several colonies -- Massachusetts, New Jersey -- issued paper
money, not redeemable in precious. Ben Franklin rescued Pennsylvania
from depression caused by lack of currency, by issuing
state-sanctioned paper money (1723).
Paper money became so popular that the English Crown banned it in
1764, preventing the colonies from paying debts to creditors in
paper money despite pleadings from Franklin:
I'll tell the honorable gentlemen of a revenue that will produce
something valuable in America: Make paper money from the colonies,
issue it upon loan there, take the interest, and apply it as you
Both Franklin and economic historian Alexander Del Mar attributed
the true cause of the Revolution to the suppression of paper money
in the colonies. It was this, and not some small tax on tea, or
other duties, they say, which led to the Revolution.
During the revolution, the fate of the Continental is well-known
from the phrase not worth a Continental but underappreciated is the
Massive British Counterfeiting of the Continentals during the
Revolution, debasing the currency greatly (metals (Zarlenga, Steven,
The Lost Science of Money; Pgs. 365-380). This,
combined with the States own continued over-issuance of paper money,
contributed to tremendous inflation.
The Constitution and the Coinage Clause
Poor? Look upon his face. What call you rich? Let them coin his
nose, let them coin his cheeks. (William Shakespeare)
The meaning of the phrase to coin Money (capitalization in the
original) in Article 1, Section 8, has been greatly debated, by the
coiners of the phrase itself, as well as the ratifiers, and in
subsequent Legal Tender Cases by the Supreme Court.
These Legal Tender Cases were argued after president Lincoln first
issued United States Notes to fund the Civil War ($450 million); a
move that was later challenged after the war, even by his own
then-Secretary of the Treasury, Salmon Chase (later the Chief
Justice of the Supreme Court). Timothy Canova, writing for the Nova
Southeastern University Shepard Broad Law Center says: Lincoln's
Populist Sovereignty: Public Finance Of, By, and For the People.
This was the nation's first fiat currency (United States Notes,
also known as the greenback) which made up about 40 percent of the
nation's money supply during the peak of the Civil War. Forty
percent. That is an extraordinary amount of new currency to
introduce in about a year, via three Legal Tender Acts (1862-1863),
but even though there was short-term inflation, in large part caused
by shortages due to the war itself, over the Greenback's heyday in
the late 19th century, the Greenback became so popular that a
political party was formed to insure its future (The Greenback
Robert G. Natelson, writing in the Harvard Journal of Law and
Public Policy, opens his long and heavily sourced academic paper
with the Shakespeare quote above, immediately casting doubt on the
popular, but erroneous, interpretation of the constitutional phrase
as meaning to make any Thing but gold and silver Coin a Tender in
Payment of Debts (capitalization in the original), a phrase which is
actually from Article 1, section 10, the only place gold or silver
Coin is mentioned in the constitution. The constitution makes it
clear that gold and silver Coins are to be used as payment by the
States alone, not the Federal Government. And in fact, there is no
precedent for the States ever having paid their debts in species
(gold or silver coin).
(This writer has argued elsewhere that gold and silver, when used
simply as a store of value, as in gold bars, should be taxed, like
other forms of Land, under a Georgist paradigm, since gold and
silver are two of very few metals that never rust, degrade or age.
The amount of wasted human and natural resources used simply to
store gold and silver bullion, plus the under-taxed pollution costs
of this intensely polluting industry, makes it something that should
be paid for by those who operate it. George said: "We have
deliberately substituted a costly currency for a cheap currency; we
have deliberately added to the cost of paying off the public debt.
We are digging silver out of certain holes in the ground in Nevada
and Colorado and poking it down other holes in the ground in
Washington, New York, and San Francisco." (Social
Problems, pg. 168).
It is clear that, after some rulings, and reversed rulings, but
culminating in Legal Tender case Julliard vs. Greenman, (1884) that
the Federal Government does have the power, albeit under the
borrowing clause of the constitution, to issue paper money.
From the opening of the court decisionÂ (Justica.com;
U.S. Supreme Court Center, Legal Tender Cases, 110 U.S. 421 (1884)
Julliard vs. Greenman
Congress has the constitutional power to make the Treasury notes
of the United States a legal tender in payment of private debts, in
time of peace as well as in time of war.
Under the Act of May 31, 1878, c. 146, which enacts that when any
United States legal tender notes may be redeemed or received into
the Treasury, and shall belong to the United States, they shall be
reissued and paid out again, and kept in circulation, notes so
reissued are a legal tender.
MR. JUSTICE GRAY delivered the opinion of the Court.
The notes of the United States, tendered in payment of the
defendant's debt to the plaintiff, were originally issued under the
Acts of Congress of February 25, 1862, c. 33; July 11, 1862, c. 142,
and March 3, 1863, c. 73, passed during the war of the rebellion,
and enacting that these notes should be lawful money and a legal
tender in payment of all debts, public and private, within the
United States, except for duties on imports and interest on the
public debt. 12 Stat. 345, 532, 709.
The provisions of the earlier acts of Congress, so far as it is
necessary for the understanding of the recent statutes to quote them
are reenacted in the following provisions of the Revised Statutes:
SEC. 3579. When any United States notes are returned to the
Treasury, they may be reissued, from time to time, as the exigencies
of the public interest may require.
SEC. 3580. When any United States notes returned to the Treasury
are so mutilated or otherwise injured as to be unfit for use, the
Secretary of the Treasury is authorized to replace the same with
others of the same character and amounts.
SEC. 3581. Mutilated United States notes, when replaced
according to law, and all other notes which by law are required to
be taken up and not reissued, when taken up shall be destroyed in
such manner and under such regulations as the Secretary of the
Treasury may prescribe.
SEC. 3582. The authority given to the
Secretary of the Treasury to make any reduction of the currency
by retiring and canceling United States notes is suspended.
SEC. 3588. United States notes shall be lawful money, and a
legal tender in payment of all debts, public and private, within
the United States, except for duties on imports and interest on
the public debt.
Natelson further says:
One might have expected an inquiry into whether the phrase to coin
Money, encompassed paper, for an affirmative answer would render the
implied-powers arguments of both sides unnecessary. But neither side
has made such an inquiry, and both have assumed that the phrase to
coin Money was limited to metallic tokens. They have so assumed even
though the Constitution's wording and structure should have
encouraged investigation. As explained below, ascribing a purely
metallic meaning to coin creates serious textual difficulties.
These textual difficulties might be summed up thusly: The Founders
were perfectly capable of saying when, how, and who, should create
actual Coins for repayment of debts, and when they used the action
phrase (a verb) to coin they meant to make. They were neither
inarticulate, nor cute, in using the phrase to coin but were using
the frequently used nomenclature of the times. For example, under
the Supreme Court's decisions, McCulloch v. Maryland, (1819) and
Veazie Bank v. Fenno, (1869) the Supreme Court has affirmed the
FISCAL AND MONETARY POWERS OF CONGRESS.
Coinage, Weights, and Measures.
The power to coin money and regulate the value thereof has been
broadly construed to authorize regulation of every phase of the
subject of currency. Congress may charter banks and endow them with
the right to issue circulating notes, and it may restrain the
circulation of notes not issued under its own authority.
In Veazie, the court said:
It cannot be doubted that under the Constitution the power to
provide a circulation of coin is given to Congress. And it is
settled by the uniform practice of the government and by repeated
decisions, that Congress may constitutionally authorize the emission
of bills of credit.
Today, United States Notes can be bought for about twice their
face value on eBay. And
As of June 2011, the U.S. Treasury calculates that $230 million in
United States notes are in circulation, and excludes this amount
from the statutory debt limit of the United States.
Options to reissue U.S. Notes have been proposed by both
Republicans and Democrats on several occasions, including the
current Transportation Secretary when he was in Congress, Ray
LaHood. LaHood proposed reissuing $360 billion, roughly 100 times
the last authorized amount ($346,681,016) of Greenbacks when they
[From Wikipedia - 1963 $5 U.S. Note -
phased out in 1999, in order to rebuild transportation
infrastructure. Although that bill was defeated, the fact remains
that Congress can simply issue Greenbacks in any amount, at any
time, for any reason. I have created a petition to encourage
Congress to do so here:
which is also exhibit B in a lawsuit against Treasury wending its
way through the courts, and more fully described here: Johnson,
Cliff (The American Crisis: To Free a Lender-Owned Nation (Part 1)
Additionally, sole use of this kind of money is specified in Rep.
Dennis Kucinich's bill, HR2990, based on Stephen Zarlenga's proposal
from the American Monetary Institute.
It is telling that United States Notes are excluded from the debt
limits, but in practice, this is a feature, not a bug, of United
States Notes, since it allows this form of currency to be put to
more productive use. A better, more productive way to inject this
new money into the economy would be via public works jobs (we are
still living off the great public works produced by FDR). The
national debt can, in any case, be paid off indirectly through
increased tax revenues resulting from growth and full employment,
while the government ends borrowing, forever.
Double entry accounting, an accountant friend of mine assures me,
is not a God-given law, or something without which financial
accounting cannot function. This is no reason to stick with a system
that must produce debt every time it produces money. We can split
debt and money. FDR did it to a limited extent. Lincoln did it.
Franklin did it. The Mint does it today with coins. Henry George
recognized the inherent moral superiority of having the government
produce money, debt-free, instead of a private banking cartel, or,
conversely, of having wildcat banking; see also, Mihm, Stephen, A
Nation of Counterfeiters: Capitalists, Con Men, and the Making of
the United States, where dozens of regional banks and even private
businesses like taverns, could produce their own money.
So, why not split the difference? Have government provide more
money when needed, and for big, national projects that only
government can do, but do it in a way that doesn't increase the
To counter ever-rising levels of debt, provide full employment,
and to create jobs for things that need to be done, Congress should
create debt-free United States Notes.